Inflation report shock upends Federal Reserve rate bets heading into 2025 todayheadline

Updated at 8:54 AM EST

U.S. inflation ticked higher in December, data indicated Wednesday, but core price price pressures eased, potentially sparking a relief rally in stocks tied to renewed bets on Federal Reserve interest rate cuts. 

The Commerce Department on Wednesday pegged its headline Consumer Price Index for December at an annual rate of 2.9%, accelerating from the 2.7% pace recorded in November and the highest level since early last year.

On a monthly basis consumer price pressures edged 0.4% higher, modestly faster than the prior month’s advance of 0.3%, even as domestic gasoline prices declined 1.1%.

Both headline tallies matched Wall Street’s forecasts.

So-called core inflation, which strips out volatile components like food and energy, eased to an annual rate of 3.2%, just inside Wall Street’s 3.3% forecast and the lowest rate in more three years.

The core decline was the first since July while the monthly core reading of 0.2% was also inside Wall Street forecasts and the final November reading of 0.3%. 

The data could suggest an easing of near-term inflation heading into the start of the year, enabling the Fed to consider lowering its benchmark lending rate this spring.

“The softer-than-expected CPI print offers some relief, especially after last Friday’s hot employment numbers, that the Fed may be able to still cut interest rates in 2025,” said Skyler Weinand, chief investment officer, Regan Capital in Dallas. 

“Even if the Fed cuts rates in 2025, it’s likely to be 6-8 months away, as we are still too far from the Fed’s inflation target for the Fed to continue their rate cut march anytime soon, Weinand added. “The Fed needs to see more employment and inflation prints before they can start to telegraph their interest rate plans.”

U.S. stocks added to gains following the inflation report: Futures contracts tied to the S&P 500 suggest a 92 point opening-bell gain and those linked to the Dow Jones Industrial Average are priced for a 690 point surge. The tech-focused Nasdaq, meanwhile, is called 380 points higher.

Benchmark 2-year Treasury note yields eased 8 basis points to 4.2985% while 10-year notes slipped 7 basis points to 4.695%.

Related: Wall Street debates bond market rout as inflation data looms

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.44% lower at 108.789.

The CME Group’s FedWatch, meanwhile, suggests a 97.3% chance that the Fed will hold its benchmark lending rate steady at 4.375% when it wraps up its policy meeting later this month in Washington.

The first, and likely the only, rate cut of 2025 is forecast for June, according to FedWatch data.

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“The labor market remains strong, giving the Fed flexibility in containing the second half of its mandate — inflation,” said LPL Financial’s chief economist, Jeffrey Roach. 

“[Federal] funds futures markets have priced out interest rate cuts until at least this summer, albeit at a slim margin,” he added. 

“Both Treasury bonds and equity markets have recently been shaken by renewed inflation fears.”

Related: Veteran fund manager issues dire S&P 500 warning for 2025